Indiana banks dealing with terms of federal bailout

By
Abby Henry

Posted December 12, 2008

News of bank bailouts – like the numbers which accompany them – can be hard to quantify. The process discussed in Washington works differently when it hits the ground in Indiana.

Since the government announced a bail-out plan for banks across the nation in October, Mitch Ferree, who oversees the Bloomington Regions Bank, says people have been worried.

“There’s been an awful lot of customer contact with a lot of questions from the public wanting to know how safe and sound the bank is and a lot of questions in terms of how we would be impacted,” Ferree said.

The government bailout raises FDIC insurance limits of $100,000 to $250,000 dollars until December 2009. According to Fifth-Third Bank Vice President Greg Dehon, the bill was the core of what started the Capital Purchase Program-or what has been called the bailout plan.

But DeHon and others say the “bailout” plan isn’t a bailout at all.

“So, again, it’s not free money. There is definitive terms in there in terms of a repayment that the government will get paid a certain percent just as any investor would in any of these publicly traded companies,” DeHon said.

DeHon also says there are firm time frames as to when and how the money must be paid back to the government.

Mike Vea is the CEO of Evansville-based Integra Bank, which recently applied to be part of the Capital Purchase Program.

“We refer to it as the equity program from the government as opposed to the bailout because there’s a big difference in my mind. A bailout is, you know, a gift that somebody does. Some might argue for some of the big banks what’s happened–those were bailouts. But for mid-size and smaller banks like ourselves it’s clearly not a bailout, it’s an opportunity to get capital at an effective cost to grow with,” Vea said.

So, bank representatives must first decide their bank should be part of the program, at which point they usually apply for the maximum amount of funding, Vea says. Then banks have thirty days to work with the government on how much money they actually want to take. But Mitch Ferree of Regions Bank says the government has dictated that not every bank is eligible for the program.

“If they don’t see the bank is strong enough to participate they won’t put funding in,” Ferree said.

Fifth Third Bank’s Greg DeHon says the Capital Purchase Program aims to provide additional credit to consumers and businesses, as well as give additional money to banks so they can grow and weather trying economic times.

But even in the face of bailouts and a rash of home foreclosures, Ferree says, the minimum credit score needed to get a loan has not risen and it’s not necessarily harder to borrow money.

“I don’t think it’s really their intent to make credit more stringent. In fact, I think the whole intent of the plan is to get money moving through the system again. So I think that if anything changes it probably will try to loosen it so that we can get more money pumped back into the economy to help the economy get on its feet again and rolling forward,” Ferree said.

Integra Bank CEO Mike Vea says Midwestern banks may be able to continue issuing loans because communities in the Midwest are faring better than communities elsewhere in the nation.

“As we look at it, our economies are still pretty strong, our companies and our consumers are all pretty strong, and they’ve been pretty conservative. So, I think the lower Midwest is in a good position. Which is good for all of us as banks because banks really are only as good as their local economies,” Vea said.

Vea says he believes the purchase program and other stimulus packages the government has approved will start getting traction by the middle of 2009. But no one can say for sure whether the programs will be enough to pull the economy out of recession.

What is RSS? RSS makes it possible to subscribe to a website's updates instead of visiting it by delivering new posts to your RSS reader automatically. Choose to receive some or all of the updates from Indiana Public Media News:

What is RSS? RSS makes it possible to subscribe to a website's updates instead of visiting it by delivering new posts to your RSS reader automatically. Choose to receive some or all of the updates from Indiana Public Media News: